Pound jumps as UK eyes softer exit

Sterling jumped against the euro as investors seized on the prospect of the UK retaining preferential access to the EU’s single market after Brexit.

The currency reached its strongest level in almost two months against the dollar and climbed the most since early November against the euro, as Britain needs to keep open the possibility of continuing to pay fees to the EU even after it leaves, UK chancellor Philip Hammond said, after one of his colleagues said this could not be ruled out.

Brexit minister David Davis told lawmakers earlier that Britain would consider making payments to Brussels after it leaves to achieve the best possible access to the bloc’s markets for businesses.

“We have to look at any deal in the round ... and I think David Davis is absolutely right not to rule out the possibility that we might want to contribute in some way to some form of mechanism,” Mr Hammond told reporters at a briefing in Edinburgh.

He said the UK would consider making contributions to the EU in order to secure the best possible access to the single market.

Dutch finance minister Jeroen Dijsselbloem, who is also the euro group leader, told the Times of Malta that Britain might be able to participate in the internal market, albeit at a cost.

However, Mr Hammond said that a Brexit deal for Scotland that was separate to the one agreed for the UK as a whole was not a realistic prospect. That may come as a blow to the Government’s hopes here of securing a special deal for the island of Ireland.

Sterling’s advance is evidence of how sensitive the currency is to officials’ comments about the nature of Britain’s relationship with the EU once it quits the bloc. It climbed 1% to 83.8 pence against the euro and by 1.2% to $1.2650 at one stage. Sterling has fallen from 76 pence on the eve of the Brexit vote in June, and is down from around 69 pence this time last year.

“If the UK does stay in the single market, it’s very likely that sterling will go up,” said Neil Jones, head of hedge-fund sales at Mizuho Bank in London. The comments “very much shift the pendulum away from hard to soft Brexit. Embedded within a soft Brexit is access to the single market one way or another,” he said.

Meanwhile, London’s FTSE 100 Index of shares, which is dominated by companies that sell goods abroad and benefit from a weaker currency, fell sharply.

“This is the first time we can recall a senior EU official acknowledge the possibility of the UK having access to the internal market since Brexit,” said Derek Halpenny, European head of global markets research at Bank of Tokyo-Mitsubishi UFJ, referring to Mr Dijsselbloem’s comments.


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